solutions chapter 7

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141 chapter 7 Exercise solutions chapter 7, Exercise solutions , Principles of Econometrics, 3e 142 EXERCISE (a) When a GPA is increased by one unit, and other variables are held constant, average starting salary will increase by the amount $1643 ( , and the coefficient is significant at = ). Students who take econometrics will have a starting salary which is $5033 higher, on average, than the starting salary of those who did not take econometrics ( , and the coefficient is significant at = ). The intercept suggests the starting salary for someone with a zero GPA and who did not take econometrics is $24,200. However, this figure is likely to be unreliable since there would be no one with a zero GPA. The R2 = implies 74% of the variation of starting salary is explained by GPA and METRICS (b) A suitably modified equation is 1234SALGPAMETRICSFEMALE e= + + + + Then, the parameter 4 is an intercept dummy variable that captures the effect of gender on starting salary, all else held constant.

(d) The coefficient of income suggests that a $1 increase in income will increase the average number of days on which alcohol is consumed by 0.000057. If income was measured in terms of thousand-dollar units, which would be a sensible thing to do, the estimated coefficient would change to 0.057.

  Income